GAIN Report - IN8049 Page 4 of 32
Required Report - Public distribution
Date: 5/12/2008
GAIN Report Number: IN8049
IN8049
India
Cotton and Products
Annual
2008
Approved by:
Holly Higgins
U.S. Embassy
Prepared by:
Santosh Singh
Report Highlights:
India’s MY 2008/09 (August/July) cotton production is forecast to increase marginally to 25.4 million U.S. bales, an unprecedented sixth consecutive record crop, on higher planting. Bt cotton coverage is expected to peak at 85 percent of the forecast cotton area. Consumption is forecast to increase to 19.0 million bales on expected recovery in export and domestic demand for cotton textiles. Exports are forecast higher at a record 7.0 million bales; and imports at 390,000 bales, mostly extra long staple cotton.
Includes PSD Changes: Yes
Includes Trade Matrix: No
Annual Report
New Delhi [IN1]
[IN]
Table of Contents
SECTION I: SITUATION AND OUTLOOK 3
Table 1: Commodity, Cotton (480 lb bales), PSD 3
Production 3
Status of Bt Cotton 6
Consumption and Stocks 9
Prices 10
Trade 10
Extra Long Staple Cotton 12
Table 2: Commodity, ELS Cotton (1-3/8" or 35mm staple length and above) 12
Cotton Textile Industry 13
Production Policy 14
Trade Policy 14
SECTION II: Statistical Tables 16
Table 3A: Area, Production & Yield of Cotton in Major States 16
Table 3B: Planting Season, Irrigation & Cotton Type by Major Region 17
Table 4: Cotton Consumption (Mills and Small Spinning Sectors) by Months 17
Table 5: Month-End Prices of Popular Varieties 18
Table 6: Commodity, Cotton, Import Trade Matrix 19
Table 7: Commodity, Cotton, Export Trade Matrix 20
Table 8: Growth of the Indian Textile Industry 21
Table 9: Production of Spun Yarn 22
Table 10: Production of Manmade Fiber 23
Table 11: Production of Manmade Filament Yarn 24
Table 12: Production of Fabric 25
Table 13: Consumption of Major Fibers/Yarns by the Textile Industry 26
Table 14: Prices of Raw Cotton and Other Fibers 27
Table 15: Per Capita Availability of Cloth in India 28
Table 16: India’s Exports of Textile Items 29
Table 17: Exports of Ready-made Garments from India 29
Table 18: Commodity, Export Trade Matrix, Cotton Yarn 30
Table 19: Export Trade Matrix, Cotton Fabrics 31
Table 20: Export Trade Matrix, Cotton Madeups 32
Table 21: Existing Import Policy & Tariffs/Duties for Cotton/Cotton Textiles 33
SECTION I: SITUATION AND OUTLOOK
Table 1: Commodity, Cotton (480 lb bales), PSD
Cotton India / 2006 / 2007 / 20082006/2007 / 2007/2008 / 2008/2009
Market Year Begin: Aug 2006 / Market Year Begin: Aug 2007 / Market Year Begin: Aug 2008
USDA Official / Post Estimate / Post Estimate New / USDA Official / Post Estimate / Post Estimate New / USDA Official / Post Estimate / Post Estimate New
Area Planted / 0 / 9142 / 9142 / 0 / 9530 / 9530 / 9650
Area Harvested / 9166 / 9142 / 9142 / 9500 / 9530 / 9530 / 9650
Beginning Stocks / 8064 / 8064 / 8064 / 7530 / 7014 / 7665 / 8563
Production / 21800 / 21800 / 21800 / 25300 / 24360 / 24986 / 25376
Imports / 400 / 400 / 465 / 325 / 400 / 390 / 390
MY Imports from U.S. / 0 / 0 / 0 / 0 / 0 / 0 / 0
Total Supply / 30264 / 30264 / 30329 / 33155 / 31774 / 33041 / 34329
Exports / 4634 / 4850 / 4565 / 6100 / 5850 / 6246 / 7027
Use / 18100 / 18400 / 16823 / 18200 / 18100 / 16944 / 17568
Loss / 0 / 0 / 1276 / 0 / 0 / 1288 / 1406
Total Dom. Cons. / 18100 / 18400 / 18099 / 18200 / 18100 / 18232 / 18974
Ending Stocks / 7530 / 7014 / 7665 / 8855 / 7824 / 8563 / 8328
Total Distribution / 30264 / 30264 / 30329 / 33155 / 31774 / 33041 / 34329
Area in thousand hectares, Other PSD numbers in thousand 480 lb.
Note: Production figures in the table include 937,000 bales of loose cotton.
Production
Assuming normal weather conditions, marketing year (MY) 2008/09 (August/July) cotton production is forecast to rise marginally to 25.4 million bales (5.5 million tons) on slightly higher planting. If realized, India is set to have the sixth consecutive record cotton crop riding on increasing planted area and yields due to favorable weather and an expanding share of Bt cotton varieties. Cotton area in MY 2008/09 is forecast to increase marginally to a record 9.7 million hectares due to relatively firm cotton prices (Table 2) and record yields for this year’s crop (Table 2). Per hectare yields are unlikely to increase significantly over the MY 2007/08 record yield (571 kg/hectare) that was strongly supported by ideal weather conditions in most states. The latest cotton arrival estimates[1] indicate that MY 2007/08 production estimate will reach 25.0 million bales from a record area (9.5 million hectares) and a record yield (571 kg. per hectare).
Cotton, a predominantly monsoon-season crop, is planted from the end of April through September, and harvested in the fall and winter (Table 4B). Planting intentions are largely influenced by the relative price and profitability of cotton vis-à-vis competing crops (rice, guar, and fodder crops in the north; coarse grains, pulses, and sugarcane in the central region; and rice, tobacco, and chilies in the south). Despite good returns from cotton during MY 2007/08, relatively strong end-season prices of competing crops (paddy/maize/soybean/peanuts/chilies/coarse cereals) will limit any major shift in area from competing crops to cotton (Table 3A). Assuming normal weather at the planting time, cotton planting is expected to expand marginally over last year’s record area to 9.65 million hectares.
Indian cotton production has been a success story as production has more than doubled in a short span of six-years from 10.6 million bales in MY 2002/03 to 25.0 million bales in 2007/08. The production growth has been fueled by rapid gains in productivity as there is limited scope for expansion in area[2]. Although area has increased to record levels during the period, cotton yields have nearly doubled from 302 kg per hectare in 2002/03 to 571 kg per hectare in 2007/08. However, Indian cotton yields are still below the world average yield, indicating scope for future growth. About 70 percent of the total cotton production is accounted by the states of Gujarat, Maharashtra and Andhra Pradesh (Table 3A).
The bumper growth in yields can be attributed to introduction and expansion of Bt cotton and improved hybrid cotton varieties[3], improved crop management practices[4] and overall favorable weather conditions in most of the growing states. Industry sources estimate more than half of the productivity gains can be accounted by expansion in the use of Bt cotton and hybrid varieties and 20-30 percent by adoption of improved crop management practices. A comparison of the productivity of cotton vis-à-vis competing crops during the period clearly point towards the technological breakthrough in cotton production.
With the area under Bt cotton and improved varieties almost peaking, the prospect for future growth in productivity due to varietal improvement is limited. Although potential exists for a further increase in yields, cotton farmers will have to invest more in production technologies for improved management of irrigation, fertilizers and micro nutrients and pests and diseases, i.e., move toward precision farming. Riding on the expectation of the continued current growth trend, the government has set up an ambitious production target of 28.1 million bales (6.1 million tons) by 2010[5]. Some industry sources estimate cotton production to peak around 27.0 million bales in the next few years.
Industry sources report that increasing adoption of Bt cotton is leading to changes in the varietal profile and share of different types of cotton produced. With most of the Bt hybrids varieties being medium and long staple cotton (26 to 32 mm), there is a increasing shortage of domestic cotton of short staple (below 22 mm) and extra long staple (35 mm and above). If the current varietal trend continues, the domestic textile industry may have to augment their short staple cotton requirements through imports which they are already doing in the case of extra long staple cotton.
Status of Bt Cotton
Bt cotton was introduced in 2002 and has been an unprecedented success story in the short span of six years as area has grown to a remarkably high proportion. Bt cotton area is estimated at 7.7 million hectares in 2007/08, more than 80 percent of the total area under cotton[6]. Bt cotton planting in MY 2008/09 is forecast to increase further to 8.2 million hectares, almost 85 percent of forecast cotton area.
Industry sources expect that the Bt cotton share will stabilize at around 85 percent of total cotton area. Due to the significant reduction in seed prices of approved Bt cotton varieties, a wider choice of approved Bt hybrids, and growing awareness about the reliability and benefits of approved Bt seeds, cotton farmers are rapidly shifting from unapproved Bt seeds to approved Bt cotton seeds. In the coming years, various Bt cotton hybrid varieties will compete for area due to factors such as better germplasm (higher yield potential), improved Bt technology (stacked gene events) and adequate availability of seeds.
Approximately 3.8 million out of an estimated 5.5 million cotton farmers planted Bt cotton in MY 2007/08. Various empirical studies report significant benefits to farmers from Bt cotton by way of an increase in yields (30-60%) and reduction in the number of pesticide sprays (50 percent) resulting in a 50 to 100 percent increase in profits[7]. Improved availability of raw cotton to the domestic textile industry at affordable prices also provides the Indian textile industry with a competitive edge in the global market. Due to the remarkable benefits from the technology, there is strong and growing political support for Bt cotton in India among the farmers, textile industry, politicians and policy makers.
Since the first approval of one event and three hybrid varieties of Bt cotton in MY 2002/03, the GOI has approved four events and 162 hybrids from 24 seed companies for commercial cultivation in different agro-climatic regions. Industry sources report that several new Bt cotton Hybrid varieties are in the pipeline for approval for the upcoming 2008/09 planting season. Consequently, cotton farmers have a wider range of choice of Bt cotton hybrids as they increasingly adopt higher yielding Bt hybrids (better germplasm or improved Bt technology like BG-II) among range of available approved varieties.
Approval of Bt Events and Hybrids for Commercial Cultivation
Year / Events / No. of Hybrid Varieties2002/03 / MMBL’s Bollgard I / Three
2003/04 / MMBL’s Bollgard I / Three
2004/05 / MMBL’s Bollgard I / Four
2005/06 / MMBL’s Bollgard I / Twenty
2006/07 / MMBL’s Bollgard I & II; JK Seed’s Event 1, and Nath Seeds GFM Event / Sixty Two
2007/08 / MMBL’s Bollgard I & II; JK Seed’s Event 1, and Nath Seeds GFM Event / One hundred and sixty two
In addition to the approved varieties, there are several (forty to fifty) Bt cotton hybrids, illegally developed, multiplied and marketed by farmers and seed companies, which are available at cheaper rates vis-à-vis approved hybrids. However, area under unapproved Bt cotton seed has been rapidly declining since 2006 after state governments forced the approved Bt cotton seed suppliers to lower seed prices. Market sources report that the price differential between approved and unapproved Bt hybrids has declined to a level at which the farmers prefer to plant approved Bt hybrid seeds due to the higher risk associated with production from unapproved Bt cotton seeds.
Consumption and Stocks
After a slowdown in MY 2007/08, cotton consumption in MY 2008/09 is forecast to recover to 19.0 million bales (4.1 million tons) on expected improvement in domestic and export demand for textiles and sufficient domestic supplies. Ending stocks are forecast to decline marginally to 8.3 million bales (1.8 million tons), sufficient for more than five months of the consumption requirement. Post’s MY 2007/08 consumption estimate is revised marginally upward to 18.2 million bales (3.9 million tons) based on the latest official monthly consumption figures available for the period August 2007 through January 2008 (Table 4).
After robust growth for two consecutive years in the post Multi Fiber Agreement period (January 2005 onwards), growth in India’s cotton consumption faltered in MY 2007/08 due to a slowdown in export demand, high cotton prices, and depressed domestic demand. The strong appreciation in value of Indian rupee vis-a-vis the U.S. dollar since April 2007[8] has resulted in a slowdown in export demand and a significant decline in the rupee value realization from exports. High cotton prices along with increasing power and transportation costs have further exacerbated the crisis for the textile exporters. The deceleration in exports had a ripple effect in the domestic market as some of the exporters offloaded export goods in the domestic market. Industry sources report a recovery in prices of cotton yarn and textiles since March 2008 due to stronger demand, both export and domestic, which should improve the prospects for domestic consumption. Consequently, MY 2007/08 consumption has been raised marginally higher to 18.2 million bales. Industry sources expect cotton consumption to recover in MY 2008/09 on continued strong growth in the economy, and an expanding middle class. Consequently, MY 2008/09 consumption is forecast to increase by 4 percent to 19.0 million bales.